Financial Planning, Pinoy Style!

Question: How should we do personal financial planning based on our culture? Unlike the west, we heavily support family members. Randi Espera Ongoco (@randieongoco) via Twitter

Answer: I have been a student and a teacher of financial planning for many years, and it is true that we do things very differently here in the Philippines.

It is a common observation that financial literacy is not very high in our beloved nation, which makes it very difficult to do financial planning. To make things worse, the citizens of this nation, and the nation itself have very low savings rates. The Philippines has a savings rate of less than 20 percent while it is estimated that the Filipinos themselves have a savings rate below 10 percent. Reports from the Bangko Sentral ng Pilipinas say that of about 36 million Filipinos with bank accounts (with a total of over P5 trillion), 23 million of us have balances below P5,000.

Filipinos are not much of an investor, which is why our investment market, although performing extremely well, is not as big as it should be. The rate of Filipinos with insurance is likewise low at less than 20 percent of the household heads.

Here’s another disturbing statistic, it is believed that only about 10 percent of Filipinos actually prepare for retirement. Because of all these, a big majority of the population ends up financially dependent on their children during their old age. An SSS (Social Security System) study said that over 70 percent of Filipinos during retirement are living with and are being supported by their children.

There are many issues abound with context to your question. We can’t argue the fact that income opportunities in this nation are really a big problem, but I believe that our financial woes go beyond just income. I have personally been a witness to many individuals who had relatively good income and yet failed miserably with regard to being financially secure. For instance, the increase in the average of income employed by the BPOs and our dear OFWs was not a guarantee to see many of them with a financially secure future.

While the results or the symptoms may seem economic in nature, I believe that our problems are largely behavioral and cultural. It is said that personal finance is 80 percent behavior and only 20 percent skill, a notion that I agree with. In our case, we have big issues with both the 80 percent as well as the 20 percent.

A big behavior issue is that we spend much more than we should and we save far less than what we are supposed to. Don’t you even wonder why our nation now has the record number of malls and it seems that many malls are being built monthly, maybe even weekly? The stark increase in the number of shopping malls through the last 10 years only shows that the income of Filipinos is improving; and yet the increase in savings among us is grossly disproportional.

To make things worse, a big cultural issue that you pointed out is that Filipino parents expect their children to support them financially. While supporting parents financially is very noble, the impact of such actions to many Filipinos results in not being able to save enough for their old years and making themselves dependent on their children in the future; a vicious cycle indeed. A skill issue among many of us is we do not really know how to properly invest and we borrow too much.

Here are my tips for you:

Increase your cash flow. You can do this by earning more money and spending less money. Your biggest asset is yourself. If you constantly invest in your competence and abilities, your income will surely grow. Be disciplined in spending, reduce unnecessary expenses, avoid too much “wants” and evade buying too many “stuff.” Having budgets and sticking to it is your best strategy in better handling your finances. As your cash flow improves, you will begin to generate more savings.

Reduce or eliminate debt. Borrowings, especially unnecessary borrowing such as consumer debt (credit card debt, personal loan, hulugan, etc.) is very costly because of the interest you pay. Also, it is difficult to have a good level of savings when you owe too much as you end up paying debt against saving money.

Take baby steps in savings and investing. Often, we think we always think too big when it comes to saving and investing. In reality, big savings is really just small savings done very regularly. The same goes for investing. You may want to enroll in an auto-debit program of your bank so you will have forced savings. Some banks like BDO and BPI offer auto debit arrangements that go into an investment account like a mutual fund or a unit investment trust fund.

Review your finances periodically. It is prudent that you inspect what you expect. Regularly check your progress vis-à-vis your goals. Always check your spending, ideally on a daily or weekly basis. Review your savings level also, maybe twice a month or once a month. Look at your investment progress and performance at least on a quarterly basis so you can make changes if need be. Regular reviews not only keep you informed, it also motivates you when you actually see progress.

Communicate with family. This is perhaps the most difficult task of all. Respectfully discuss financial matters with affected members of the family. Let them know that while you really want to help members of the family, you are also limited by your resources and your personal obligation to prepare for your own future. Limits or budgets are a good way to objectively set expectations. Other members should also be given the obligation to provide assistance. It is unfortunate that many families rely on just one member (the one who earns the most), but that shouldn’t be the case. Reliance on just one or two members of the family results in a scrounging dependence by other family members. Communication done with utmost respect and a lot of love will solve many issues of family members. Remember, you need to do this so that you will not be a burden to your children in the future.

Financial planning “Pinoy style” is a bit tricky, but it is not rocket science. The only way for this country to really move towards a financially peaceful future is to start planning today.

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About the Contributor

Randell Tiongson is an award-winning personal finance coach who has had 25 years of experience in the financial service industry.

4 Thoughts

I could not agree more. What we can do is maximize our money. I am opting for insurance, investment, and savings.

The first option, insurance, will guarantee that whatever happens, there is sufficient backup for financial aid for beneficiaries in a duration of time till someone else could fill in the blanks. Blessedly, if you lived long enough to reach maturity of your premium lumpsum, that would act as your early retirement fund (emphasis on early since the government mandates it at age 65 – study SSS and Pag-ibig procedures).

Investment addresses the relatively short-term needs compared to that of the insurance. Take caution and look before you leap, though. Interests are high and so are risks, but with good knowledge you can manage your share or at least monitor it. Remember not to put all your eggs in one basket.

Savings are the safest and can be liquidated instantly. Only that savings is just inactive money – with the least annual interest, very minute compared to the principal. Still handy for on-demand needs and purchases. Rule of thumb is to keep this greater than your total debt (credit cards and all forms of loans).

The best is your own business but that is way beyond my ken.

Whether you are employed or you run your own business, as long as there is regular cash flow and efficient budget scheme, you will never have to worry about your present and future financial security.

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